Social Security Disability Insurance: Is Eligibility Impacted by a Settlement?
A settlement can compromise eligibility for certain government benefits. Keep reading to learn about eligibility requirements for Social Security Disability Insurance and whether settlement funds will impact benefits.
What is Social Security Disability Insurance?
Social Security Disability Insurance (SSDI, also called Social Security Disability or SSD) provides monthly payments for individuals with disabilities who can no longer work. Administered by the Social Security Administration, SSDI benefits are funded with payroll taxes.
Applicants for SSDI must have worked a certain number of years and within a specific timeframe before applying for benefits.
The applicant must also have a “qualifying disability.” Social Security Administration disability standards include the following:
- Because of the medical condition, the applicant cannot work and engage in substantial gainful activity.
- The applicant cannot do previous work or adjust to other work because of their medical condition.
- The condition has lasted or is expected to last at least one year or result in death.
Certain other groups of individuals may also qualify for SSDI benefits, including those who are blind or have low vision, a surviving spouse with a disability, children with disabilities, wounded warriors, and veterans. Complete information about SSDI eligibility requirements can be found on the Social Security Administration website.
SSDI benefits are funded through payroll taxes, making SSDI an “entitlement benefit.” In other words, eligibility for these benefits is not based on income or assets. Instead, if you pay into the system, you receive the benefits. Other entitlement benefits include Medicare and Social Security (also referred to as “Social Security Retirement”).
Because eligibility for SSDI benefits is not based on an individual’s income or assets, a settlement does not affect eligibility.
Needs-Based Benefits and Benefit Verification Letters
Conversely, needs-based benefits use income and asset tests to determine eligibility and may be terminated if the beneficiary receives a settlement. Needs-based benefits include Medicaid, Supplemental Security Income (SSI), SNAP, and subsidized housing. More information about preserving needs-based benefits can be found here.
State and federal benefit requirements are subject to change and the use of similar acronyms (e.g., SSDI, SSI) can add to the confusion. We strongly recommended that law firms obtain Benefit Verification Letters for every new client to ensure their benefits are not disrupted.
To do so, your client can create an account on the Social Security Administration website here. At that point, your client can easily share a copy of the Benefit Verification Letter with you and your settlement consultant. By going through this process before settlement, the law firm and the settlement consultant have adequate time to review and make proper recommendations for preserving present and future benefits.
Settlement Planning for SSDI Beneficiaries
While a settlement will not impact your client’s SSDI eligibility, there are still many important considerations when creating a plan for settlement funds. For instance, a structured settlement can help extend the life of the settlement funds while growing income tax-free. The structured settlement payments can help create a steady source of income to supplement SSDI benefits. Depending on the claimant’s age, an ABLE account is another potential option for growing income tax-free.
Other claimants with disabilities may not currently receive needs-based benefits but may require them in the future. In those instances, a trigger trust may be an appropriate settlement option.
The best settlement plan for a claimant receiving SSDI benefits will be unique to that person’s circumstances. Engage your settlement consultant early in the process to help ensure your client has a plan that meets their needs.
For more information about settlement planning for individuals with disabilities, contact us today.